Ownership, Location, Internalization Research Articles

From process to performance: extending the OLI perspective of R&D Internationalization

Existing studies concerning the internationalization of research and development (R&D) base their frameworks on Dunning’s ownership-location-internalization (OLI) eclectic paradigm, focusing on the...

Geographic clustering and outward foreign direct investment

This study addresses an important neglected question: To what extent do geographic clusters promote outward foreign direct investment (ODI)? We find evidence that clusters do promote ODI and so support Porter's argument that advantages gained in clusters can be the foundations of successful internationalisation. Digging deeper, we find that certain cluster incumbents promote more ODI than others, with more experienced firms and firms with stronger resource bases accounting for more ODI. We also find that firms located in clusters within major global nodes/cities engage in more ODI. Finally, we find that both localisation and urbanisation economies promote ODI. However, the former, within-industry effects, are more important. Overall, this study echoes Dunning's call for more focus on the ‘L’ component of the ownership, location, internalisation (OLI) paradigm and particularly on the advantages that reside in clusters that make them not only attractive destinations for foreign direct investment (FDI) but also fertile environments from which FDI can spring.

Rethinking the O in Dunning’s OLI/Eclectic Paradigm

John Dunning introduced the OLI (Ownership‐Location‐Internalization) paradigm 37 years ago to explain the origin, level, pattern, and growth of MNEs’ offshore activities. Over the years, OLI has developed into perhaps the dominant paradigm in international business (IB) studies. However, the costs of being a paradigm are reflected in Dunning’s efforts to include an ever‐expanding array of IB theories and phenomena under the OLI “big tent.” In this paper, we focus specifically on the O in the OLI paradigm, tracing the history of Dunning’s ownership advantages. We argue that the modifications of O advantages over the past 37 years, as Dunning attempted to bring all IB phenomena and IB‐related theories under the OLI “big tent,” has had mixed results. However, we continue to believe that the typology of ownership advantages retains its relevance for IB scholars; that O advantages cannot and should not be subsumed within internalization advantages; and that O advantages are necessary for explaining the existen...

Expatriate or local? Predicting Japanese, subsidiary expatriate staffing strategies

Can Dunning's OLI (Ownership, Location, Internalization) framework be extended from predicting FDI location decisions and entry mode choices to other international strategic decisions? Using data from 891 new (two years or younger) Japanese foreign subsidiaries, we investigate the relationship between Dunning's OLI variables and expatriate staffing ratios (the ratio of expatriates to local employees). We found empirical support for Dunning's framework as a predictor of Japanese new subsidiary expatriate staffing ratios. Implications and directions for future research are discussed.

Client following revisited

Client following is considered the major motivation of professional businesses for entering a foreign market. However, client following alone cannot explain why a company chooses foreign direct investment (FDI) rather than other entry modes, such as exporting or franchising. It cannot explain how a transnational advertising agency (TNAA) can compete with local firms in an unfamiliar environment. This paper applies the ownership–location–internalisation (OLI) model to gain a more thorough understanding of the motives of TNAAs for entering China. The results support the notion that the presence of clients (i.e. client following) is the major motive, but only part of the story: it is the most important advantage of location. On the other hand, ‘competent personnel’ is the key advantage of ownership, while ‘ensuring quality control’ is the principal advantage of internalisation. Internalising their operations in China was seen as a better economic choice for foreign agencies, rather than merely exporting or establishing a franchise. Surprisingly, neither the importance of avoiding the dissipation of tactical knowledge as an advantage of internalisation nor the importance of company size as an ownership advantage was supported by the TNAAs.

Edith Penrose and a learning-based perspective on the MNE and OLI

We apply insights from Edith Penrose’s work to extant theory of the multinational enterprise (MNE) as enveloped by John Dunning’s Ownership, Location, Internalization (OLI) Paradigm. We suggest that Penrose’s knowledge-based approach has important implications on the nature of, and the interactions between, O, L and I. Importantly, the resource/knowledge-based perspective of Penrose helps endogenize and integrate the three elements of Dunning’s triad in the context of a dynamic, strategic and forward-looking knowledge-based perspective of the MNE.

Toward an integrated theory of multinational evolution: The evidence of Chinese multinational enterprises as latecomers

This paper seeks to address the fundamental question of how much we can modify and enhance the ownership–location–internalization (OLI) Model of multinational enterprise (MNE) formation to reflect the new evidence of MNE latecomers from the developing countries. The evidence of three longitudinal cases from China suggests that the traditional OLI and the newly proposed linkage–leverage–learning (LLL) Model of MNE formation can be readily integrated within a content-process framework of MNE evolution so as to better explain all types of MNE from both the developed and the developing countries.

Edith Penrose and a learning-based perspective on the MNE and OLI

We apply insights from Edith Penrose’s work to extant theory of the multinational enterprise (MNE) as enveloped by John Dunning’s Ownership, Location, Internalization (OLI) Paradigm. We suggest that Penrose’s knowledge/learning-based approach has important implications on the nature of, and the interactions between, O, L and I, and it helps endogenize and integrate the three elements of Dunning’s triad in the context of a dynamic, and strategic perspective of the MNE. More importantly, a learning-based perspective adds a cognitive dimension to the MNE and OLI. This supports a forward looking, synchronic decision making view, that may lead to apparently sub-optimal decisions, taken in view of anticipated changes, along-side strategic behaviour, aiming to effect such change, once decisions have been reached. A Penrosean-inspired knowledge/learning-based perspective helps render the OLI more dynamic, strategic and forward looking.

Is Dunning's Eclectic Framework Descriptive Or Normative?

Can Dunning’s OLI (Ownership, Location, Internalization) framework be used to predict the best performing international entry modes or merely the most commonly selected modes? Using data from German and Dutch firms investing in Central and Eastern Europe, we investigate the relationship between Dunning’s OLI variables, entry mode selection and managerial satisfaction with firm performance. We found empirical support for Dunning’s framework as both a descriptive and a normative model.

The New Zealand Dairy Board: A Case of Group-Internalization or a Monopolistic Anomaly in a Deregulated Free Market Economy

This paper examines the New Zealand dairy industry and in particular the pivotal role of the New Zealand Dairy Board which, historically, has had sole responsibility for the international marketing of dairy industry output. The structure of the dairy industry is examined identifying the links between the dairy cooperatives and the Board using the concepts of the ownership, location, internalization (OLI) paradigm and alliance capitalism. The paper concludes that the structure of the New Zealand dairy industry and the New Zealand Dairy Board, more closely resembles the network structures of alliance capitalism, rather than being a monopolistic anomaly in a hierarchical capitalist system.

The Timing of Foreign Direct Investment under Uncertainty: Evidence from the Spanish Banking Sector

This paper investigates the timing of foreign direct investment (FDI) in the banking sector. The importance of this issue would arise from the existence of differential benefits associated to be the first entrant in a foreign location. Nevertheless, when uncertainty is considered, the existence of some Ownership-Location-Internalization (OLI) advantages can make FDI less reversible and/or more delayable and therefore it may be optimal for the firm to delay the investment until the uncertainty is resolved. In this paper, the nature of OLI advantages in the banking sector has been examined in order to propose a prognostic model of the timing of foreign direct investment. The model is then tested for the Spanish case using duration analysis.

Determinants of foreign direct investment in Turkey

AbstractThe motives and characteristics of western MNEs' foreign direct investment (FDI) in Turkey are considered in terms of Dunning's ownership, location, internalization (OLI) paradigm for a sample of 98 firms. A parsimonious set of motives is identified by means of factor analysis. Binomial logit regression models are used to test a set of hypotheses concerning the relative importance of FDI motives and the sample characteristics. The findings are that the relative importance of the OLI factors vary most with the industry of the investment, to a moderate extent with the size of the investment and to a modest extent with the ownership pattern of the investment (wholly owned subsidiary or joint venture). © 1998 John Wiley & Sons, Inc.